In the framework of an associative memory model, we study the interplay between synaptic deletion and compensation, and memory deterioration, a clinical hallmark of Alzheimer's disease. Our study is motivated by experimental evidence that there are regulatory mechanisms that take part in the homeostasis of neuronal activity and act on the neuronal level. We show that following synaptic deletion, synaptic compensation can be carried out efficiently by a local, dynamic mechanism, where each neuron maintains the profile of its incoming post-synaptic current. Our results open up the possibility that the primary factor in the pathogenesis of cognitive deficiencies in Alzheimer's disease (AD) is the failure of local neuronal regulatory mechanisms. Allowing for neuronal death, we observe two pathological routes in AD, leading to different correlations between the levels of structural damage and functional decline.